The Freight Economist
July 2024
Executive summary
Monthly economic and market update
Truck operating costs
(excluding fuel) rose 7%
in 2023, as spot and contract rates fell 20% and 13% respectively.
U.S. economy
Housing and
construction
Income and spending
Labor market
Freight demand
Imports
Truck
tonnage
Manufacturing
Consumer spending
U.S. containerized imports remained strong year-over-year, up 10.4% in June compared to June 2023. However, there was a slight decrease (2.1%) from May's level, which is typical for June as import volumes often dip by about 3% this time of year. Encouragingly, this June's decline was the second-smallest compared to May in the past six years, according to Descartes.
Imports
What does it mean for truck tonnage?
Consumer spending on goods
Key data points and commentary
Trucking
volume
Rail volume
and rates
Geographic
trends
Routing guide trends
Routing guide trends
Geographic trends
Average m/m and y/y van spot rate index by origin regions – June
Source: DAT
Trucking volume
The Cass Freight Shipments Index fell 1.8% m/m on a seasonally adjusted basis after a 3.1% drop in May. The index was 6% below its year-earlier level. Meanwhile, the American Trucking Associations’ Truck Tonnage Index rose 2.4% in May on a seasonally adjusted basis after decreasing 1.7% in April. Despite this increase, the index was 1.3% lower than its year-earlier level.
Rail volume and rates
Intermodal rates fell 0.3% in June after a 0.8% increase in May, according to the Producer Price Index (PPI). The index, which measures all-in rates (including fuel), was only 0.9% higher than its year-earlier level. Meanwhile, carload rates were flat month-over-month, but still 3.8% higher than the June 2023 level, according to the same index.
Mazen’s work focuses on analyzing the freight transportation landscape, and producing short- and long-term forecasts based on supply and demand dynamics. He is also a research affiliate with the Intelligent Transportation Systems (ITS) Lab at MIT, where he completed his PhD in 2019. His work falls at the intersection of ITS, economic modeling, and analytics.
mdanaf@uberfreight.com
By Mazen Danaf, Senior Economist and Applied Scientist, Uber Freight
Featuring insights and contributions from Uber Freight leadership,
technologists and market specialists.
Despite the seasonal tightness, routing guide performance on the Uber Freight platform remained robust in June. First tender acceptance rates dipped slightly to 93%, but remained near record highs. Route guide compliance stayed strong at 95%, suggesting most spot volume is intentional or one-off shipments. Low inflation over primary carrier costs further reduces the risk of route guide failures in this soft market.
In June, there was a partial rebound in housing starts and building permits, following a steep decline in the prior months that brought them to their lowest levels since the start of the housing recession. While starts dipped 4.6% in May, they rose 3% in June. Similarly, building permits fell 2.8% in May but bounced back 3.6% in June. Despite the uptick in June, both starts and permits remained lower than year-ago levels, by 4.4% and 3.1% respectively.
High mortgage rates are the leading contributing factor. 30-year fixed rates are near a 30-year high, leading to a 16.5% decrease in new home sales compared to last year and a staggering 40% drop from the peak in October 2020.
Executive
summary
U.S.
economy
Freight
demand
Freight
supply
Housing and construction
Average m/m and y/y van spot rate index by destination regions – June
Source: DAT
Dry van spot rates rose across all regions in June. The largest increases were seen in outbound shipments from produce markets in the West (+7.4%) and Southeast (+4.2%). Inbound rates rose across all regions, with the largest increases observed in rates headed to the Northeast (+4.9%). On a year-over-year basis, outbound rates were flat to slightly positive except in the West region, where they were 5.7% higher than the June 2023 level. Inbound rates were 4.4% lower year-over-year in the West, but 4.5% higher in the Southwest.
1/2
Key data
points
Shipper and carrier insights
Real spending on goods rose 0.6% in May, but remained 0.9% lower than the highmark seen in December. Spending on durables rose 1.1% and was 1.7% higher than its year-earlier level, while spending on nondurables rose only 0.3% and was 1.6% higher year-over-year.
Growth in spending on durable goods was led by furniture and durable household equipment (+1.1% m/m), and recreational and sporting goods and vehicles (+2.6% m/m). Among nondurables, spending on clothing and footwear rose 1.1%, while spending on food and beverages ticked down 0.1%.
Empty miles and declining rates squeeze carrier margins
Inflation
Retail sales dipped slightly in June, but still held strong compared to last year. Overall sales were up 2.3% from June 2023. Car dealerships and gas stations were the only bumps in the road. Car sales dropped 2% from May, likely due to a cyberattack on CDK Global, a software provider that helps dealerships manage sales and service. Gas station sales fell 3% as pump prices dipped.
Excluding those two sectors, the retail picture is brighter. Sales actually rose 0.8% in June and a healthy 3.8% year-over-year, beating inflation for everyday goods. The leading category last month, like in recent months, is online shopping. Non-store retailers saw sales jump 1.9% from May and a staggering 8.9% compared to last June.
2/2
Except for weak residential investment, positive signs emerged for truckload demand in May. Adjusted for tonnage, consumer spending, wholesale activity, and manufacturing output all increased by 0.3%, 0.3%, and 0.7%, respectively. June likely saw a similar rise, with retail sales excluding autos and gasoline growing by 0.8% month-over-month, and manufacturing output climbing 0.5% (adjusted for truck tonnage).
1/2
2/2
As inflation continued to moderate, the unemployment rate climbed to 4.1%. This is the highest level since November 2021 and a significant jump from the April 2023 low of 3.4%. This rapid rise, even if the rate remains historically low, has often been a precursor to recessions.
1/3
Intermodal shipping activity increased slightly (0.9%) in June compared to May. This indicates a strong year-over-year gain of 7.7% compared to June 2023. The increase is likely due to a surge in imports to the West Coast, which were up 10.4% year-over-year in June. Meanwhile, rail carloads edged up 0.6% in June from May, but were down slightly (0.2%) compared to June 2023.
1/2
2/2
Shipper and carrier insights
Unemployment is slowly creeping up.
While the U.S. economy added 206,000 nonfarm jobs in June, the unemployment rate climbed to 4.1%. This is the highest level since November 2021 and a significant jump from the April 2023 low of 3.4%. This rapid rise, even if the rate remains historically low, has often been a precursor to recessions.
Further signs of softness come from slowing wage growth. June saw wages rise just 3.9% y/y, the lowest increase since the pandemic began in March 2020. Additionally, while job openings and new hires edged slightly higher in May, they remain well below their year-ago levels, down 12.6% and 6.7% respectively.
Labor market
U.S. inflation slowed in June to its lowest rate in 39 months.
Consumer prices dipped slightly in June (down 0.1%) but remained 3% higher compared to last year. This marks the lowest year-over-year inflation rate since March 2021. Excluding volatile sectors like food and energy, core inflation rose modestly (0.1% in June), and was 3.3% year-over-year. The biggest price drops were seen in energy (including gasoline), used cars, and transportation services. The only sector to see a substantial price increase was food away from home, where prices rose 0.4% m/m.
Inflation
Real spending and disposable income rose in May.
Disposable income for consumers (adjusted for inflation) increased by 0.5% in May. However, it remained only slightly higher (1.1%) compared to a year ago. This rise in income led to increased spending (up 0.3% from the previous month on an inflation adjusted basis). Year-over-year, spending grew by 2.4%.
The increase in May was primarily driven by purchases of goods, which rose 0.6% compared to the previous month (compared to a smaller 0.1% increase for services). Interestingly, the year-over-year trend is reversed. Spending on goods only grew 1.7% from the same time last year, whereas spending on services saw a stronger increase of 2.8%.
Income and spending
U.S. manufacturing tumbled back into contraction after a brief recovery.
The ISM PMI for June registered 48.5, indicating a contraction in manufacturing activity for the third consecutive month. This follows a single month of expansion in March, which had offered a glimmer of hope after 16 months of prior decline. Production, new orders, and backlogs all dipped below 50 in the ISM report, pointing to weakening output and a deteriorating outlook. While all other ISM indexes signaled weakness, the Prices index remained above 50, reflecting ongoing cost pressures from rising commodity and raw material prices.
Manufacturing
1/2
Both manufacturers’ orders and shipments fell in May by 0.5% and 0.7%% respectively. While orders for durable goods remained flat month-over-month, orders and shipments for nondurable goods plummeted 1.0%. On a year-over-year basis, orders for durable goods were down 1.5%, while orders for nondurable goods were up 3.4%.
Orders for core capital goods, excluding aircraft, serve as a key indicator of future manufacturing activity. In May, these orders fell 0.6%, and were 0.3% lower year-over-year. Shipments of core capital goods also fell 0.6% m/m and were flat y/y. Since both orders and shipments are measured in nominal dollars, this suggests that real orders and shipments (adjusted for inflation) are likely lower than their year-ago levels.
Manufacturing
2/2
Freight supply
Spot rates
Class 8
trucks
Supply and demand indices
Driver
employment
Truckload demand rose 0.5% in May after gains in consumer, wholesale, and manufacturing sales. This puts demand 1.1% higher year-over-year, though it remains 4.3% below the pandemic peak.
Meanwhile, long-distance truckload employment dipped slightly, causing a 0.3% decrease in truckload supply. Despite expectations of a significant correction, supply only fell 0.5% year-over-year, likely due to stronger-than-anticipated Class 8 truck sales.
Truckload supply and demand indices
Trucking employment fell 0.1K in June after a 6.1K drop in May. Employment was at its lowest level since July 2023, which was just after the Yellow bankruptcy. Long-distance truckload employment, a strong predictor of spot rates, fell 1.7K in May after a 1.1K drop in April, to its lowest level since September 2022. Despite the recent decrease, long-distance truckload employment remains 4.4% above the pre-pandemic level (January 2020), which was already an oversupplied market back then.
Driver employment
Dry van linehaul spot rates rose 6 cents per mile in June, mirroring seasonal trends and extending gains from May. This increase brought rates flat year-over-year, finally ending a 26-month stretch of negative comparisons—the longest since the Great Recession.
Since linehaul spot rates are calculated by subtracting a hypothetical fuel surcharge, lower diesel prices contributed to the increase in spot rates. June saw a drop of $0.10 per gallon, reaching the lowest level since January 2022. However, it's important to note that diesel prices have been rising for the past four weeks (mid-June to mid-July).
Spot rates
Meanwhile, capacity continued to exit the market, as trucking employment fell 0.1K in June after a 6.1K drop in May. Additionally, Class 8 tractor orders in North America fell 38% in June (seasonally adjusted), and were 10% below their year-earlier level.
3/3
The American Transportation Research Institute (ATRI) published its latest report on truck operating costs in July 2024. The report revealed a counterintuitive trend: operating costs increased by 2 cents per mile despite a 9-cent decline in diesel prices. This rise can be attributed primarily to significant year-over-year increases in insurance premiums (+13%), truck and trailer costs (+9%), and driver wages (+8%).
The report further details that truckload costs averaged $2.11 per mile, which includes fuel costs. This figure is slightly lower than the average dry van spot rate in 2023 ($2.28/mi). Notably, spot rates fell to $2.19/mi in the first half of 2024.
Market conditions
Market
conditions
Despite the uncertain economic outlook and weak residential investment, positive signs emerged for truckload demand in May. Adjusted for tonnage, consumer spending, wholesale activity, and manufacturing output all increased.
2/3
North American Class 8 tractor orders plummeted 38% in June (seasonally adjusted), sinking 10% below year-ago levels. This decline follows a trend of weak orders (except for May), leading to a 12% drop in truck sales for June, which were down 19% year-over-year.
Strong production and sales activity from the past year have significantly impacted the backlog. It has shrunk by 27%, reaching its lowest point since November 2020. This translates to a shorter truck lead time of just 4.5 months, the fastest turnaround since October 2017.
Class 8 trucks and trailer orders
While not as intense as June, seasonal pressures still impact southern produce markets in the U.S. such as California, Georgia, and Florida. In these markets, rates are usually about 5% to 10% higher than the rest of the year in July. Meanwhile, the market remains soft in Mid- and North-Western states such as Washington, Oregon, Idaho, and Minnesota, where rates are 10% to 15% below their year averages. Over the next two months, we expect these Northern markets to tighten significantly, while Southern produce markets are expected to cool down.
An analysis of deadhead mileage, the distance traveled empty, revealed a concerning trend. Deadhead mileage increased from 15.4% to 16.3% due to a weak market. Carriers are forced to travel greater distances to secure profitable freight, incurring significant costs for empty miles. It is crucial to remember that carriers are not compensated for deadhead miles, further straining their bottom line.
To gain a more comprehensive understanding of profitability, we can consider the cost per revenue mile (CPRM). This metric reveals a grimmer picture, with carriers incurring an average operating expense of $2.52 per revenue mile. This translates to a significant cost disadvantage compared to current spot rates, exceeding the 2023 and 2024 year-to-date averages by 10% and 13%, respectively.
The situation is further compounded by shrinking margins on contracted freight. The average operating cost per revenue mile in 2023 is only 4% higher than current contract rates. This suggests that carriers are experiencing significant pressure on their profitability, even for contracted business. Therefore, current spot and contract rates are not sustainable over the long-term.
Seasonal trends are the primary driver of market movements